Too Many Homes, No One Is Buying

A report from the Seattle Times in Washington. “Seattle for nearly two years led the 20-city S&P CoreLogic Case-Shiller index in annual price growth for homes, but falling prices here in recent months have now dropped it to fourth place. The Seattle metro area’s year-over-year increase was 7.3 percent through October. But in recent months Seattle prices have actually dropped: 11 percent over six months through November, according to the Northwest Multiple Listing Service.”

“That reversal again made Seattle the market with the fastest month-over-month decline in October — 1.1 percent. In Seattle, other factors may be contributing to the sharp reversal from last spring’s record prices, including a record-breaking streak of apartment construction, a decline in interest by Chinese buyers, and uncertainty about the tech sector here in the wake of Amazon’s plans to add major growth centers elsewhere.”

“Las Vegas, one of the epicenters of the housing bust that caused the U.S. economy to collapse into a recession at the end of 2007, has made a surprising comeback. ‘After the last recession, Las Vegas diversified its economy by adding a medical school, becoming a regional center for health care, and attracting high-technology employers’ said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.”

From Fox 5 Vegas. “Then: too many buyers, not enough homes. Now: too many homes, no one is buying. It’s been a wild year in the Las Vegas housing market. ‘We basically had a tale of two markets,’ Coldwell Banker Premiere Realty CEO Bob Hamrick said. ‘Close to the first half of 2018, things were in a hyper state, property values were appreciating, selling very quickly to now.'”

“New builds popped up across the valley. But as those sizzling hot summer temps cooled down, so did the housing market.”

This should be limited to Seattle due to its isolated case of tech bubble. Fortunately, other areas of the country are insulated from this kind of mania and prices will start rising momentarily (especially Silicon Valley)

CS is laggy by design, as homes in the sample used to compute it have to have sold twice. So it basically averages over past periods of price change, which leaves the current rate of price change an open question.

And the houses all look the same – especially in all those overbuilt developments with High HOA’s…they look so cheaply built, house after house, all jammed together on clear cut land that has been tarred and cemented over – like an airport of houses blending all together in the backdrop of gray skies. Yea, no buyers want to overpay for that or pay for it at all. Only the desperate and extremely Naive.

I tend to go with the specuvestor theory, at least to explain who was buying up until six months ago.

Now that prices are dropping at 11 percent over six months, it will be quite interesting who steps up to buy. Maybe Wall Street investment banks can step in to stop the plunge, after they finish saving the stock market?

‘Then: too many buyers, not enough homes. Now: too many homes, no one is buying’

It was just a couple of months ago that Las Vegas was the hottest shack market in the US, we were told. Again, a blow out top followed by a sharp decline is indicative of a bubble. We’ve only seen that dozens of times now.

‘After the last recession, Las Vegas diversified its economy by adding a medical school, becoming a regional center for health care, and attracting high-technology employers’

‘We basically had a tale of two markets,’ Coldwell Banker Premiere Realty CEO Bob Hamrick said. ‘Close to the first half of 2018, things were in a hyper state, property values were appreciating, selling very quickly to now.’”

No, Bob, there was only one market. It was a bubble, thanks to years of QE and ultra-easy credit, and now it’s bursting. Party’s over, and legions of FBs will shortly be mailing in the keys to their underwater shacks and skulking out of town under cover of darkness.

And many of those houses are sitting in developments where the banks are finding all the problems from the fast, quick builds – poor plumping, electric, sewer, sheet rock, insulation, etc. This from a friend in the area who looks for underwater opportunities. He wonders how any of these houses passed code or inspections as they may look all lipsticked up from the outside – though cheap and all the same – but under the hood it’s all there: slow running drains, leaky envelops beyond the winterization fix, extremely poor drainage around and close to the houses, gutters improperly sized for the Sq footage of the houses, on an on. Disaster in the shadows.

In Boise, I am running many of these flips through the city’s building permit system… big surprise, I’d say 10% or less had proper permits. Not everything requires a permit, but the stuff that does is not being done with one. Not that quality work requires a permit, but the stuff I saw in person and later verified as unpermitted, was unbelievably shoddy.

IMO there will be a third party come in to buy up these shacks in bulk to rent them back out. Yesterday there was a story in the Washington Post about Memphis rentals and how they are fleecing the heck out of poor people with fees and such, and evicting them at a moments notice. My guess is they will Move Up the food chain from poor people and include more middle class folks.

Remember, everyone in the REIC and the government are “here to help you”.

I talked about this before the last meltdown. Once prices crash to where they pencil out for average people, those people are shut out of the market by backroom deals between lenders and insiders where the houses are packaged in volume, and sold off for pennies on the dollar, oftentimes to the very people who caused the meltdown. They simply incorporate under a different name so they can enjoy the spoils of both the halcyon days and the depression.

Which explanation of this week’s experience on Wall Street works better?

1) After a one-day suspension, the financial version of the Law of Gravity has been reinstated.

2) A massive financial tsunami wave hit Wall Street on Monday, driving stock prices out to sea before they rapidly flooded up again yesterday. Today the outwash phase of the massive volatility shockwave is back.

This all reminds me of a question: What cataclysmic economic event, that the MSM failed to report, took place to trigger this epic volatility event?

Everyone loved the sugar high as trillions of dollars in Quantitative Easing were added to the Fed’s balance sheet, suppressing risk premiums and driving up bubbles in risk assets of every description. It turns out that the reverse process of Quantitative Tightening is financially painful and politically perilous.

I find it amazing to see the market this riled up when the Fed has barely begun its balance sheet unwind.
Will they be able to complete the process before political headwinds stop them in their tracks?

Timeless quote in the era of Keynesian economics-based Central Bank bubbles. Just dust it off every 10 years or so.

“The popularity of inflation and credit expansion, the ultimate source of the repeated attempts to render people prosperous by credit expansion, and thus the cause of the cyclical fluctuations of business, manifests itself clearly in the customary terminology. The boom is called good business, prosperity, and upswing. Its unavoidable aftermath, the readjustment of conditions to the real data of the market, is called crisis, slump, bad business, depression. People rebel against the insight that the disturbing element is to be seen in the malinvestment and the overconsumption of the boom period and that such an artificially induced boom is doomed. They are looking for the philosophers’ stone to make it last.” — Ludwig von Mises (1940)

Here’s another one:
“I have never seen a soft Landing” – 2008 Angelo Mozilo, 2008
– I would add that the only soft landing then was for Angelo, since he never saw jail time. “Laws are for the little people.”

Yogi’s wife sent him upstairs to get his approval about a possible new apartment she had wanted them to move into. He quickly returned downstairs, claiming: “won’t work, I can’t sleep standing up!” … (it had a Murphy’s bed)

The biggest day-after-Christmas rally in stock-market history wasn’t enough to convince investors that Wall Street has seen the worst of a year-end selloff that’s threatened to end the second-longest bull market. In fact, it might have done the opposite.

The Dow Jones Industrial Average (DJIA, -2.36%) was trading sharply lower Thursday, giving back a chunk of Wednesday’s 1,086-point rally, a gain of 5%. The S&P 500 (SPX, -2.51%) was also following its tandem 5% jump with a decline, while the Nasdaq Composite (COMP, -3.03%) was relinquishing a portion of its gains. Wednesday’s rally marked a rebound from a Monday selloff that represented the worst Christmas Eve performance for all three indexes in history.
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One of these days in your travels, a guy is going to show you a brand-new deck of cards on which the seal is not yet broken. Then this guy is going to offer to bet you that he can make the jack of spades jump out of this brand-new deck of cards and squirt cider in your ear. But, son, do not accept this bet, because as sure as you stand there, you’re going to wind up with an ear full of cider.

‘Bulls can take encouragement from the fact that three of the 17 other days that saw an advance of 5% or more came immediately in the aftermath of the October 1987 crash, “when buying did prove a good plan,” while two more came in March 2009 when the S&P 500 hit bottom and began its current bull run.’

Didn’t the Fed make large helicopter drops of printing press money on Wall Street at those low points? Not to suggest this could ever happen again…

Many traders and investors were expecting (or hoping for) a huge rally in the stock market this week. And they got it — at least for one day.

The contrarian signs were there: bearish sentiment in the AAII survey rose to a five-and-a-half year high; at the close on Dec. 24, the technical indicator, RSI (Relative Strength Indicator) plunged well below 30 (oversold) to around 19 — a level not seen in a decade. Moreover, the financial media also turned negative, so it’s been hard to find many bullish articles.

And then, like a dream come true, both the Dow Jones Industrial Average (DJIA, +1.14%) and the S&P 500 (SPX, +0.86%) rallied 5% on the day after Christmas, shattering records and surprising nearly everyone.

Except that “the most violent, fast, parabolic countertrend rallies mostly occur inside bear markets,” veteran market technician Jeff Bierman said in an interview. “This was a ‘dead-cat bounce’ short squeeze that was engineered by the high-velocity algorithms. The market went up too far, too fast to believe it is more than a one-day wonder.”
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…this is a bear market that will take months or longer to be resolved. When a market gets this oversold, and sentiment is so overwhelming negative, rallies are expected. So while there may be occasional rallies, the market will drop even lower before it bottoms.

Watch the 200-day moving average

There are several ways to evaluate when the worst is over and the downtrend reverses . One of the best markers is the market’s 200-day moving average on a three-month chart. The current downtrend gained strength as soon as the S&P 500 dropped below its 200-day moving average in early October, then tried and failed three times to rally above it. On the third failure in early December, the market plunged. When the indexes or individual stocks rise back above their 200-day moving average, and stay above, the uptrend will likely pick up steam.
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During this difficult period, the top goal of investors and traders is to reduce risk. With that in mind, when there are monster rallies, here are some actions you can take:

1. Sell losing stocks and mutual funds

Take the opportunity to reduce losing positions, or stocks that you bought too high. The market often gives you a chance to get out with small losses, if you’re willing to pull the trigger and sell. Create a plan in advance before the next rally so you know which stocks to sell. You never want to panic-sell everything at once, but instead gradually reduce the number of positions.

2. Diversify into cash

Many investors believe they are diversified until all asset classes go down at once. To protect yourself during a bear market, it’s essential you put some of your money in cash. Another option is to shift from growth stocks to value stocks that pay hefty dividends.

Consider cash (and dividend income) as an insurance policy to protect yourself in case of market disasters. Traders protect themselves with hedges (buying put options or inverse ETFs). The purpose of cash is not to make a profit but to safeguard your portfolio and take advantage of opportunities.

3. Never trade on margin

I received my first and only margin call several years ago. It was an awful experience, and extremely educational. Margin (borrowed cash from the brokerage) feels great on the way up but will double your pain on the way down. Another lesson I learned is to never meet a margin call (a demand by the broker to add cash to cover losses). I sold my entire position instead of meeting the margin call, and it saved me when the stock I owned plunged even lower. If you get a margin call, it means you made an investment mistake. Stop the bleeding and sell.

Strategies that brought you profits in an uptrend are not going to work well in a downtrend.

4. Do not dollar-cost-average in a falling market

Dollar-cost-averaging works great in an uptrend, but it can damage your account if used in a downtrend or bear market. When the market changes direction, as it has lately, you must adjust to it. The strategies that brought you profits in an uptrend are not going to work well in a downtrend.

In a bear market, it’s essential you take steps to protect yourself from further damage. Eventually, the market reaches a bottom and moves higher (but not in one day). Until then, rid yourself of losing positions during temporary rallies, increase cash, and never borrow money to buy stocks.
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It almost seems as though the Megabanks used plenty of liquidity to paint the tape on what started out as a very ugly week on Wall Street. Not sure how one can check on such conjectures, given MSM investigative cluelessness into such matters.

Looking at one of our areas prime islands we see approximately 16 months of inventory. However prices not really budging, with the exception of those which have actually sold. Those that have sold did so at prices you can understand.

I would guess that this is becoming typical in many if not most areas. It is kind of a standoff stage simular to our area in 2006 or 7. Takes a while for seller reality to set in or atleast for short sales to increase which then forces the issue.

I would guess that after 1st of year we will start to see some meaningful shifts and a verify able trend will emerge.

Actually yeah. I was lucky to sell in DC in fall 2017. Neighbor with the same shack (and these really are the same shacks – hundred year old 2/1 row houses) half a block down couldnt sell last month for 10% less. Now they are trying to rent but supply is way up too. Then I saw 2 advertised short sales in fancy neighborhoods — havent seen that since 2012. Makes sense though cause everyone says its starting with the upper tier shacks. Im trying to tell my friends to wait until 2020 to buy but they dont listen — mommy and daddy gonna help them to get on the ladder…

It’s knifecatchers all the way down. Imagine waiting until the bottom, then enjoying 3 times the house in a much better neighborhood than your friends bought, for less than they paid. It’s like getting a brand new Ferrari for the price of a used up old Ford Tempo. It’s a no-brainer.

In my county, which is always late to get the memo, has low inventory and as a result foreclosures that are wrecks are going for 500K-750K. Just dumps. Two counties over, that same price will get you a dream house. I dont know what the scum bankers are thinking, but I never do.

On an optimistic note, California home prices will eventually reequilibrate at lower levels that reflect the higher costs of homeownership due to removal of federal tax advantages. Current owners, who are among the wealthiest of its citizens, will take the capital losses, while future generations of California homebuyers will experience more affordable housing prices. It’s redistributive from rich to poor in a manner that California Democrats should appreciate.

Simply because they are ridiculously high. Without greedy hopes of effortless appreciation unending, prices will collapse with or without little government tax breaks. For speculators, the next decade will be the Hopeless ’20s.

It will take a while for buyers and sellers to catch on, but eventually it will become common knowledge that home ownership has lost some of its former tax advantages, particularly given San Diego prices. At this point, a repricing to lower levels that reflect the lost tax advantages will ensue.

Then the news that house prices are no longer going up because of a small change in carry costs will collapse the market out of proportion to that trigger. People paying 9x income do so only to profit from the house always going up.

Of course water scarcity didn’t slow down the municipal building permits or the developers. A couple more years of drafting Lake Mead at the current rate and they won’t be able to divert enough water past Hover Dam.

Yesterday’s crazy rally seems like Whitney intervening on black Thursday 1929. The fat cats came back from Christmas vacay and threw enough money into the abyss to halt the slide. Now they will try to discretely exit ASAP.

The Dow Jones Industrial Average was on the verge of staging a dramatic reversal into positive territory on Thursday, breaching positive territory after trading sharply lower on the session. The Dow (DJIA, +0.67%) was most recently up 0.6%, or 133 points, at 23,000, after being down by as many as 611 points, or 2.7%, at Thursday’s lows. The day’s trade follows a historic surge for the Dow that saw it rally by more than 1,000 points, marking the largest single-session point gain in history. The S&P 500 index (SPX, +0.44%) also turned positive on the day, up 0.3% at 2,476.
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